Psychology Sours, Stocks Sink

Whether or not Monday's stock market plunge is the beginning of the end of this rally is a matter of psychology, not necessarily data.

Investors were ready for some austerity Monday after gorging on a nearly straight-up run since mid-July. After the S&P 500 hit a six-year high last Wednesday, enough catalysts piled up to tip the scales, sending the S&P on its largest drop in over four months and the Dow Jones Industrial Average plummeting more than 150 points. But most of the excuses were psychological and not necessarily fundamental flaws for equities.

The dollar continued to break down, which rattled investors' nerves regarding the U.S. economy. The price of crude oil climbed, and bad news for Wal-Mart(WMT Quote) and Ford(F Quote) gave investors an excuse to take some profits.

The Dow dropped 1.3% to close at 12,121.79 while the S&P 500 dropped 1.4% to 1381.95; the Nasdaq Composite fell 2.2% to 2405.92. The declines were broad based, with 27 of the 30 Dow stocks in the red, and 78% of NYSE and Nasdaq volume declining.

Among Dow components, General Motors (GM Quote) and Boeing (BA Quote) fell more than 2.7%. In the Nasdaq, Google(GOOG Quote) dropped 4%, while shares of XM Satellite Radio(XMSR Quote) fell more than 5%.

Ford(F Quote) dropped 4.2% on news that the company plans to raise $18 billion of debt to fund its restructuring plan. The plans may include a $3 billion convertible security that would convert into equity shares of Ford under certain conditions, according to several reports.